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Gold: On the way to $ 5000 per ounce, or to collapse ...

13 january 2012

Last year gold gained more than 30% in price, which was caused by the fears of global recession and continuing crisis of sovereign debt in Europe.

Investors, for their part, are now wondering whether the yellow metal will retain its investment potential. Several market analysts ventured their opinions on this matter cited by Belgian daily L'Echo.

$2,400 per ounce

Boris Cukon, a commodities expert at Fuchs, has already been saying for a long time that gold will continue to grow in value, reaching the level of at least $2,400. According to him, this figure does not come from nowhere: gold prices peaked to $850 in 1980, which is $2,400 if adjusted for inflation.

From $2,100 to $5,000

According to the forecast made by Nico Pantelis, an investment adviser and founder of a specialized site, Slim Beleggen, gold prices will move to $2,000 - $2,100 in the short term. "There is no alternative. Taking into account the height hit by the Swiss franc, it is no longer viewed as a safe haven for investors. They are now hiding behind the Swedish or Norwegian crown, but in the end these countries will also face deflationary problems which may pose a threat to their competitiveness," the expert said.

In the longer term, Pantelis predicts that gold may reach $5,000 in price. In his assessment, he departs from the ratio between the Dow Jones index and the gold price. Thus, if Dow Jones levels at 8,000-10,000 points the yellow metal price would be about $5,000, he said.

"Speculative bubble"

Nouriel Roubini, an American economist, who won wide recognition for his prediction of the credit crunch, for his part, is disposed rather pessimistically. "Gold is a new mortgage bubble, only worse," he said, predicting further growth for gold prices. "But the more it goes up, the more painful will be its fall," the analyst warns.

Is gold a safe investment?

The rapid growth of gold quotations has caused concern among investors. And it is justified, as this investment vehicle growing in price for a long period of time is not completely reliable. After the record level of $850 in 1980, prices for this metal fell and it took 25 years to turn them back to the same peg.

It means that no one is safe in principle from a drop in the value of gold. At present, the yellow metal is attractive to investors because in time of troubles gold investments allow some compensation for losses in a securities portfolio.

The danger is that when the global financial and economic situation improves, securities will be once again in a privileged position compared with gold, whose price is very likely to fall. That's why investors are advised to spend no more than 5-10% of their portfolio to buy the yellow metal.

In 2010, gold prices went up 30% setting a record. In the third quarter of 2011, gold gained in price 8%, in October 6% and in November 1.5%. The ten-year period of growth in gold value was the longest, at least since 1920.

Alex Shishlo, Editor in Chief of the European Bureau, Rough&Polished